Outlook for France and Germany diverges

Outlook for France and Germany diverges

Eurozone recovery fears resurface as confidence in largest economies begins to split

New research from Grant Thornton’s International Business Report (IBR) reveals a chasm in the economic outlook of the eurozone’s two largest economies. While French business leaders rank as the most pessimistic in the 45-economy survey of 3,500 businesses, German peers continue to be optimistic about future economic growth, ranking 12th, creating an imbalance which could create instability in the eurozone and pose a threat to economic recovery. However, the IBR results also highlight resurgent business confidence in Ireland as an example of how eurozone economies can turn their fortunes around.

Business optimism across the eurozone has improved markedly over the past 12 months, rising from -22% in Q4-2012 to 8% in Q4-2013. The improvement is led by the currency bloc's most important economy, Germany, where optimism has risen 30 percentage points to 51% over the same period with expectations for revenue (51%), profit (46%) and export (26%) growth all up from this time last year. By contrast, no business community is as downbeat for 2014 as that of France; at -38%, French business leaders are more pessimistic than peers in Greece (-20%), Spain (-9%) or Italy (-4%). France also ranks last globally for the revenue (8%) and profit (-4%) growth expectations in 2014.

Ed Nusbaum, global CEO of Grant Thornton, said: “France and Germany sit at the heart of the eurozone but their economies are travelling at very different speeds and directions. Growth in Germany has suffered as the crisis is prolonged but the government budget is moving into surplus, unemployment is low and business leaders have maintained their optimistic outlook, which bodes well for investment. By contrast, France has barely grown in two and a half years, unemployment is touching 11% and government debt continues to rise – the cumulative effect on business growth prospects is alarming.

"The imbalance in the eurozone is a concern and could put pressure on the single currency. Unlike Greece, Portugal or Ireland, France has the economic weight to cause a substantial problem that central banks might struggle to contain. The eurozone is the world’s largest trading bloc and China’s biggest trading partner, so weakness there will be felt across the globe."

However, the resurgence in Ireland points to a brighter future for the eurozone. The country became the first to exit its bailout programme last month and local business leaders are now the most optimistic in the currency bloc at 68%, up from -2% this time last year. Renewed optimism is feeding through into business growth prospects with Irish firms expecting increased revenue (82%), profit (58%) and job (38%) growth compared with three and twelve months ago.

Ed Nusbaum said: “The Irish turnaround is as remarkable as it is welcome. Austerity measures imposed there have been tough, crimping the spending power of businesses and consumers, and leading to high levels of emigration. But there are signs that it is beginning to pay off with GDP expanding by 0.4% in Q3, cementing the economy's place as the 'poster child' for externally prescribed austerity measures. The relative success in Ireland represents a significant ray of light at the end of what has, at times, seemed like a very dark tunnel for the eurozone."

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Notes to editorsThe Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,500 businesses per year across 45 economies. This unique survey draws upon 21 years of trend data for most European participants and 10 years for many non-European economies.

Data collectionData collection is managed by Grant Thornton International's core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

SampleIBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted between November and December 2013.